IN the third week of this month, farmers in Punjab took to the streets of Lahore to air their grievances and register their protest against the deteriorating economic conditions in the agriculture sector.

The major problems they highlighted included the fall in prices of main crops — wheat, cotton, rice, sugarcane, maize and potatoes — and the spike in the prices of farm inputs like fertilisers, pesticides, seed, diesel, and labour wages.

Farmers are also concerned about the rising imports from India. These are coinciding with their harvest and thus leading to plummeting prices for their produce, especially vegetables, to levels that make it hardly sufficient for them to cover their costs.

As the income and price elasticity of demand for most food commodities are low, even a small increase in the marketable surplus can have a much larger impact on prices

Notwithstanding the relief in prices of diesel, transport costs have not declined by much. Accordingly, the high cost of transport remains a major problem for the farmers. And in situations of glut, the market prices may not even cover the transport charges paid by the growers.

There is a widely held perception in Pakistan that the Indian government is giving large input subsidies to its farmers, thereby reducing their cost of production.

On the other hand, purchased farm inputs in Pakistan like fertilisers, pesticides and seed etc are subjected to a high incidence of sales tax of 17pc. Thus, our farmers are at a considerable disadvantage against their competitors.

There is also the political side of the problem. When the prices of food items, especially vegetables and fruits, rise in domestic markets, politicians concerned about the vocal urbanites and the organised industrial labour either ban their exports totally or restrict them, and also encourage imports. But when the prices are down, reviving them takes much longer.

There is also the economic side of the issue. As the income and price elasticity of demand for most food commodities are low, whenever there is an increase in production, it tends to have a disproportionate impact on price: i.e., a small increase in a marketable surplus can have a much larger impact on the price. Similarly, when the crop is somewhat short, it results in a much higher increase in market prices.

The producer prices of important commodities and farm inputs from 2013 to 2015 crops are given in the table.

As per the available data, output prices for almost all the important commodities during 2014-15 have been much lower as compared to those in 2013-14. Meanwhile, most input prices have trended upward, putting a ‘double squeeze’ on farmers’ income.

The growers’ argument of rising input prices and declining commodity prices has a lot of merit and is borne out by data. The impact of the decrease in diesel prices should be reflected in the cost of production in the current crop year (2015-16).

One of the principal factors responsible for the fall in the prices of wheat, cotton, and rice has been the decline in their prices in world markets. The prices during 2014-15 in international markets have been much lower, which has had a negative fallout in the domestic markets for major producers and exporters of these crops.

The prices of potatoes in India during the current season have also been reportedly much lower as compared to that last season. In this era of globalisation and the WTO, it is nearly impossible to insulate domestic markets from developments in the global commodity markets.

But in the given circumstances of falling international fuel prices, the government should be well advised to pass on and share the savings on this count with the growers to relieve their cost of production.

In the wake of the increasing use of machinery in farm production and marketing, passing on the benefits of declining crude prices can make a real difference in farm incomes. The benefits of falling oil prices should also be reflected in lower energy prices and a fall in the power tariff for general consumers as well as farmers.

Another potential and important means of providing relief to the farmers is the abolition of the general sales tax on farm inputs. The government’s revenue loss in this context may be offset by the increase in economic activities triggered by the higher usage of technological inputs and gains in productivity, provided the bottlenecks in the supply chain are not allowed to constrain the supply of inputs.

The marketing of produce in the wake of an increase in production has emerged as a major challenge, and the farmers’ complaints regarding weighment, delay in payments (especially in the case of sugarcane), ensuring they get the support price for wheat and sugarcane, inadequate infrastructure, and a high incidence of post-harvest losses deserve the attention of the provincial governments.

The writer is a professor of economics at the Federal Urdu University of Arts, Science and Technology, Islamabad

Published in Dawn, Economic & Business, August 31st, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play